Monday, March 23, 2009

Brad DeLong Explains The Geithner Plan

Economist Brad DeLong weighs in with a brilliantly clear explanation of the Geithner Plan. The most interesting part is where he compares the economics of the plan to the costs of hiring hedge fund managers on the standard 2% management fee/20% carry system.

You should read the whole thing, but the first two paragraphs alone are worth the price of admission:

Q: What is the Geithner Plan?

A: The Geithner Plan is a trillion-dollar operation by which the U.S. acts as the world's largest hedge fund investor, committing its money to funds to buy up risky and distressed but probably fundamentally undervalued assets and, as patient capital, holding them either until maturity or until markets recover so that risk discounts are normal and it can sell them off--in either case at an immense profit.

Q: What if markets never recover, the assets are not fundamentally undervalued, and even when held to maturity the government doesn't make back its money?

A: Then we have worse things to worry about than government losses on TARP-program money--for we are then in a world in which the only things that have value are bottled water, sewing needles, and ammunition.

I hope that the Geithner Plan works. Just in case, I'm stocking up on sewing needles. I already have plenty of the other two items.


Foobarista said...

What kind of ammo?

Chris said...

Alas, I don't have anything special. What I'd really love is one of these:

Perfect for the post apocalyptic world. Just make sure you stock up first.

paul said...

That piece had more caveats in it than Carter has liver pills. Stock up on everything - if that's the type of thinking we have running this ship we're all doomed.

It'll take 4 trillion to fix he says. The budget is supposed to be 3.5 trillion. We're already 11 trillion in the hole by some estimates. Cash is being created out of thin air. Inflation is going to cream us - and we'll rightly be labeled a banana republic because they will have to inflate in order to manage the debt. These people we have in there are children playing with our grandchildren's futures... unbelievable. And that's not to disparage this economist - surely he's smarter than I am, but my point is, if he's typical of the thinking (and it sounds like he speaks for the WH) - man...

What this WH needs more than anything in the world is a historian. Seriously. They need perspective in a historical context.

For those who'd ask or say it's nice to sit on the sidelines...

If I had a plan that would work immediately to bring us out of recession it would be this (and it would work to!):

Cut Taxes for everyone - install a flat 13% tax for businesses and individuals. Treasury would then be flush with cash.

Eliminate the Cap Gains taxes to spur investment.

Flatline Gov't spending - and assure no new federal programs like universal healthcare etc.

Drill here, drill now.

and BOOM!